Controlling Food Costs in Storage and Issuing

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Controlling Food Costs in Storage and Issuing
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• Controlling Foodservice Costs

OH 6-1
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Chapter Learning Objectives

• Describe food storage techniques used to control
  theft.
• Explain the first in, first out (FIFO) method of
  stock rotation.
• Describe the proper method of taking inventory.
• Describe the various methods of inventory pricing
  (valuation).

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Chapter Learning Objectives continued

• Calculate inventory turnover rate and inventory
  value.
• Compare physical inventory to perpetual
  inventory.
• Calculate a daily food cost.

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Storage Practices Impact Profits

• Spoilage of products
• Theft of products

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Sales Needed to Replace the Value of Spoiled or
Stolen Items

• Assume 5 restaurant net profit
• Assume loss of two steaks _at_ 7.00 cost each

Amount lost Net profit percentage Additional sales required to replace lost revenue
14.00 0.05 14.00 0.05 14.00 0.05 280.00
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Controlling Spoilage

• Storage loss from spoilage is usually caused by
  carelessness.
• Spoilage loss can be controlled.
• Spoilage is caused by
• Improper product rotation
• Time abuse
• Temperature abuse

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Controlling Spoilage continued

• Excellent sanitation practices help minimize
  spoilage loss.

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First In First Out (FIFO)

• Use for refrigerated, frozen, and dry products
• Use oldest product first.
• Relies on
• The receiving clerk (to rotate stock properly)
• The person using the product (to choose properly)
• Must be continually monitored by management!

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Dry Storage
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Fresh Fruits and Vegetables
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Eggs and Dairy
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Meat and Poultry
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Fish
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Proper Sanitation Is Key

• Store foods away from walls and at least six
  inches above the floor.
• Store dry goods in airtight containers.
• Walls and floors should be nonporous and easily
  cleaned.

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Proper Sanitation Is Key continued

• Rotate stock to minimize spoilage.
• Organize products so they are easily found.
• Label shelves and sealed food containers.
• Include use by dates and name labels for all
  stored products.

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Controlling Theft

• Keep storage areas locked whenever practical.
• Establish a par stock per shift system for key
  ingredients.
• Issue secondary sets of keys on an as-needed
  basis only.

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Sample Requisition Form

• Large foodservice operations may use a
  requisition system to help control theft-related
  losses.

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Inventory Types

• Physical inventory
• An actual count of inventory items
• Usually taken to obtain information for
  theincome statement.
• Perpetual inventory
• A count based upon additions to (purchases) and
  subtractions from (requisitions) storage
• If records are properly kept, it is always
  up-to-date.

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Common Inventory Breakdowns

• Meats
• Dairy
• Bakery
• Produce

• Frozen foods
• Canned foods
• Dry goods

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Common Inventory Breakdowns continued

• The type of restaurant you manage will help
  determine the specific inventory breakdowns best
  suited for your use.

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Sample Inventory Sheet
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Inventory Valuation Methods

• FIFO
• First in, first out
• Inventory is valued at its most recent (latest)
  cost.
• Oldest product is used first.
• LIFO
• Last in, first out
• Inventory is valued at the cost of the oldest
  product.
• Newest product is used first.

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Inventory Valuation Methods continued

• Averaged price method
• Inventory is valued at a composite of all prices
  paid for the item.
• Actual price method
• Each inventory item is valued at its original
  purchase price.

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Inventory and Cost of Food Sold

• Inventory value is a critical component of the
  cost of food sold formula.

Opening inventory
Purchases
Total food available
Closing inventory
Cost of food sold
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Inventory Turnover Calculation

• Step 1 Calculate average inventory.
• Step 2 Calculate the inventory turnover.

( Opening inventory Closing inventory ) 2 Average inventory
Cost of food sold Average inventory Inventory turnover
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Daily Food Cost Percent Calculation Using
Perpetual Inventory

• Step 1 Compute daily food cost.
• Step 2 Compute food cost percentage.

Requisitions
Transfers in
Transfers out
Daily food cost
Daily food cost Daily unit sales Daily food cost percentage
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How Would You Answer the Following Questions?

• The greatest cause of inventory loss is
  (theft/poor buying practices).
• The most common product storage method used in
  foodservice is (FIFO/LIFO).
• The type of inventory that is based upon a
  theoretical count is called a
• Breakdown inventory
• Requisition inventory
• Physical inventory
• Perpetual inventory
• Daily food cost divided by (unit sales/transfers
  out of inventory) equals daily food cost
  percentage.

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Key Term Review

• Actual price method
• Averaged price method
• Daily food cost
• Extending
• FIFO method

• Inventory
• Inventory breakdown
• Inventory turnover
• Issuing

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Key Term Review continued

• Latest price method
• LIFO method
• Padding
• Perpetual Inventory

• Physical inventory
• Requisitions
• Time and temperature control
• Transfer

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Chapter Learning Objectives What Did You Learn?

• Describe food storage techniques used to control
  theft.
• Explain the FIFO method of stock rotation.
• Describe the proper method of taking inventory.
• Describe the various methods of inventory pricing
  (valuation).

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Chapter Learning Objectives What Did You Learn?
continued

• Calculate inventory turnover rate and inventory
  value.
• Compare physical inventory to perpetual
  inventory.
• Calculate a daily food cost.